Diesel cars face last gasp as demand may be hit further with BS-VI norms

When American carmaker Ford launched its new compact utility vehicle (UV) Freestyle in India three months ago, it was expecting demand to be equally split between the petrol and the diesel variants. However, the company was left surprised. As much as 65 per cent of the domestic bookings came for petrol variants; the demand for diesel stood at just 35 per cent.

A month later, Honda launched the new Amaze and was also seeing a trend identical to the Freestyle. This is in sharp contrast to 2013 when the first-generation of the Amaze was launched. Back then, 80 per cent of the demand was for diesel variants and the company had to stretch operations to ramp up production of the diesel model. 

More and more car (excluding UV) buyers now prefer to purchase petrol cars and are dumping diesel variants as the gap between petrol and diesel prices has narrowed. Regulatory uncertainty around diesel vehicles in markets like Delhi also has a bearing on the resale price of diesel cars. Diesel engine technology has been at the receiving end of bans from policymakers and courts in recent years. The data sourced from automobile industry body Society of Indian Automobile Manufacturers shows that the ratio of diesel variants in new car sales has almost halved to 22 per cent in the April-June quarter, from 42 per cent in 2013-14. 

But an even steeper decline is not far away. The gap between the price of a diesel and petrol car will turn wider when the country moves to Bharat Stage (BS)-VI emission norms from April 2020.  “Today, the difference between a diesel and petrol car is Rs 100,000. But we think it will go up to over Rs 200,000 when vehicles become BS-VI compliant. Once that happens, more buyers will start looking at petrol as a better option. We have to make sure we meet the internal targets for petrol-increased demand,” said C V Raman, senior executive director (engineering) at Maruti Suzuki, the country’s top carmaker. 

Some manufacturers are already taking cue and accordingly resorting to a petrol-only strategy. Japanese carmaker Toyota is making a shift to a petrol-only strategy for its non-sport UV (SUV) future vehicles in India. The Yaris sedan launched in May does not offer a diesel variant. 

“We have been monitoring this segment for some time now. In the past three years, there has been a rise in customer sales of petrol variants. Traditionally, customers like a diesel engine on bigger vehicles like the SUV, the multi-purpose vehicle as a higher torque is required to enjoy and handle bigger cars,” said N Raja, deputy managing director (MD), Toyota Kirloskar Motor, the Indian arm of the Toyota. The brand’s Corolla sedan now gets as much as 89 per cent of sales from the petrol variants, compared to 75 per cent some years ago.

When the going for diesel cars was great, automakers had invested heavily in expanding diesel engine production capacities. “Back in 2010, there was a huge demand for diesel cars. It shifted to petrol and then back to diesel. Now we are back to petrol. In the foreseeable future, we believe in certain segments, petrol will be dominant and in others, diesel will still command a higher mix,” said Anurag Mehrotra, president and MD at Ford India. 

Diesel remains a dominant fuel as far as UVs are concerned. But here too petrol has made measurable inroads. Petrol accounted for just 2 per cent of UV sales in 2011-12, but it has now expanded to 16 per cent. If we look at the overall passenger vehicle segment which includes cars, UVs, and vans, the share of diesel has come down to 38 per cent in the April-June quarter, against 40 per cent in 2016-17. The share of diesel used to be as high as 58 per cent in 2012-13. 

The rising sales of petrol cars, besides strong growth in two-wheelers, are also driving petrol consumption. Domestic petrol consumption, according to the petroleum ministry data, grew over 10 per cent in 2017-18 and by over 8 per cent in the April-June period. By comparison, diesel consumption grew 6.6 per cent last year and has grown 3.4 per cent in the last quarter. 

Unlike petrol, diesel consumption is not just limited to vehicles. According to a 2013 study by Nielsen, 44 per cent of national diesel consumption came from heavy and light commercial vehicles, while cars and UVs contributed 22 per cent. Other sectors consuming diesel include agriculture, industry, and the railways, etc.